Expanding supply from world’s leading producers and demand uncertainty will both affect market dynamics.
There are increasing downside risks to the global dairy outlook in the second half of this year, Rabobank’s latest Dairy Quarterly report says.
Modest production growth in the first few months of this year have underpinned dairy prices, with output from the seven biggest dairy exporters – New Zealand, Australia, the European Union, Argentina, Uruguay, Brazil and the United States – expanding by 0.5% year on year.
But this outlook is shifting, report coauthor, RaboResearch senior analyst Emma Higgins, said.
Production growth is projected at 1.1% and 1.4% in the second and third quarters of this year, marking the strongest quarterly increase since the first quarter of 2021.
Both the US and EU are expected to contribute to this growth, with additional support from South America – granted, against weak prior-year comparisons.
On the dairy demand side, signs of stress are emerging.
“These stressors include near record-low consumer confidence in the United States, troubling indicators of economic struggles in China and declining sales data from restaurants and consumer packaged goods companies across many regions,” Higgins said.
Higgins anticipated downside risks emerging in the second half of the year, driven by expanding supply and demand uncertainty.
“However, rather than a sharp downturn, we expect a recalibration from recent multi-year highs – a natural correction following a period of strong performance.”
Global trade conflicts remain elevated amid these dynamics, with volatility and rapidly changing tariffs emerging weekly – factors that are influencing global dairy trade flows.
“Nevertheless, dairy product prices, particularly in Oceania, have surged to multi-year highs.
“Recent trends at the Global Dairy Trade auction have been predominantly positive, and Fonterra has announced a record-high forecast price for the 2025-2026 season.”
Fonterra’s opening milk price forecast of $10/kg MS for the 2025-2026 season is the highest on record and positions farmers for a likely second consecutive season of double-digit payouts and sustained profitability.
“Dairy companies are acknowledging the uncertain macroeconomic backdrop to the 2025/26 season. Fonterra’s incredibly wide forecast range of $8-$10/kg MS highlights potential market volatility.”
Seasonal volatility over the winter months and unwelcome commodity price shocks are a real consideration in the current geopolitical climate, where market-moving headlines are announced almost daily, Higgins said.
“RaboResearch has a view that $9.50- $10/kg MS is a sensible range to kick off the new production season. While there is room to see the farmgate milk price move higher than this range, it will require firm dairy markets over a sustained period and a weaker currency.”
New Zealand dairy farmer confidence remains high and dairy production for next season is expected to rise.
Farmer sentiment is elevated, particularly in the South Island where land conversions to dairy are being discussed in Canterbury and to a lesser extent in Otago/Southland.
Any resulting milk growth from these conversions is likely to materialise from the 2026-2027 season.
“For the 2025/26 season, we anticipate collections will increase by 2% year on year, approaching the record volumes of the 2020/21 season,” Higgins said.
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